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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: Perspective who wrote (2600)	6/24/2003 12:54:37 AM
From: LLCF	Read Replies (1) \| Respond to of 4904

<Finally somebody manages to explain to me, clearly, how all those interest rate swaps work. > <Many U.S. corporations have swapped their long-term (fixed interest rate) debt into short-term (floating interest rate), to the extent that an increase in short-term rates could substantially raise default risks. Similarly, a growing proportion of homeowners have refinanced their mortgages into adjustable rate structures that are also sensitive to higher short-term yields.> It's simply a contract made with another party 'swapping' one cash flow [say 3mo t-bills over a 10 year period] for another [10 year bond]. If done today it's simply done at prevailing rates today... then as the value of each flow changes you have a winner.............. and loser. Who in their right mind would float a 10 or 20 year bond, and then swap their liability to libor or t-bills??? An insane manic looking to boost earnings??? Who knows, but the insane part looks about right. DAK

To: Perspective who wrote (2600)	6/24/2003 1:12:17 AM
From: LLCF	Respond to of 4904

in-the-money.com DAK

To: Perspective who wrote (2600)	6/24/2003 9:37:19 AM
From: yard_man	Read Replies (1) \| Respond to of 4904

even if we didn't have an explanation of how the interest rate swap markets work (still not sure I do after reading that) -- we all know intuitively that the government, i.e. we -- are the backstop for all the risk -- very little of it has or can be transferred to foreign bond(er bag)holders ... Notwithstanding, the amount of securitization, credit insurance and all the attendant risks of the propagation of a large failure -- just the existence of such structures are indicative of the huge underlying economic imbalances in the flows of real economic goods. Such imbalances can't be unwound gracefully or slowly ... there will be a bust. Don't have to look any further than housing and autos -- banking, finance can and will adjust however it has to when the bust happens -- but the root imbalances are below all the new financial alchemy, in the real economy. Got broken promises ...